Mon. Jan 24th, 2022

Turkey’s central bank posted an expected loss of $ 5.2 billion on December 30, but managed to close the year with a $ 4.4 billion profit.

Turkey’s central bank made an extraordinary daily profit of about $ 10 billion on the last day of 2021, raising questions about what caused this overnight blessing that will seep through to the country’s treasury.

The monetary authority recorded an annual loss of about 70 billion liras ($ 5.2 billion) on December 30, but ended the year with a profit of 60 billion liras, an unprecedented change in fortunes in a single day, according to his daily balance sheet. In February, the Ministry of Treasury and Finance – as the central bank’s largest stakeholder – will start collecting much of that amount as dividends.

The sudden turnaround comes after President Recep Tayyip Erdogan unveiled measures aimed at compensating lira investors for any losses. The Turkish currency fell 44% against the dollar last year, largely because the central bank – encouraged by Erdogan – has lowered its benchmark rate by 500 basis points since September.

The lira’s depreciation has fueled consumer price increases, with inflation ending the year above 36%, the highest level since September 2002. It is being eaten up in Erdogan’s popularity as the 2023 election approaches. But even with guaranteed returns on lira deposits, Turkish investors are still holding on to foreign currencies, undermining the Turkish leader’s plan to support the lira without raising interest rates.

Erdogan, who attacked rising borrowing costs as a brake on economic growth, promised in a speech on Tuesday to remove the “bubble” of inflation and called exchange rate fluctuations and “excessive” price increases “thorns” on Turkey’s path. Its policy of lowering rates to bring down inflation is against mainstream economic thinking.

The central bank declined to comment on the dramatic move on its balance sheet, which was first reported on Monday by the bank’s former deputy governor Ibrahim Turhan and former banker Kerim Rota, both members of the opposition Future Party. Two officials familiar with the matter said it was in line with independent auditors’ accounting advice, but asked not to be identified due to the sensitivity of the matter.

According to Turhan, a possible explanation for the significant overnight profit increase may lie in the sale of foreign exchange reserves to the treasury. The lira’s depreciation makes foreign reserves more valuable in local currency, but it cannot be recorded in the profit column until the reserves are sold, he said.

The same amount of dollars will then have to be repurchased to maintain the reserve level, Turhan said.

The Treasury’s loan program for the current three-month period has shown that authorities are already expecting £ 44 billion in external revenue next month.

(Updates to Erdogan’s speech, inflation and lire details from the third paragraph)

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